Though balloon loans are usually written under–and calledby–another name, you can identify them by the fact that the fullamount of the loan is turned over when the contract is signed, butonly the interest is paid off during the life of the loan, with a”balloon” payment of the principal due on the final day.Occasionally, a lender will offer a loan in which both interest andprincipal are paid with a single “balloon” payment. Balloon loansare usually reserved for situations when a business has to waituntil a specific date before receiving payment from a client forits product or services. In all other ways, balloon loans are thesame as installment loans.
Balloon Loan
Definition:
A loan that requires a single, usually final, payment that is much greater than the payment preceding it
